Bloomberg News

Siemens Stock Falls After Extra Project Charges Predicted

April 15, 2013

Siemens AG (SIE) dropped to the lowest in almost seven weeks after Chief Financial Officer Joe Kaeser said underperforming rail technology and offshore wind projects will result in additional charges and dent quarterly earnings.

Earnings at Europe’s biggest engineering company will also be affected by waning demand from industrial clients in the U.S. and Germany as well as a weaker-than-expected recovery in China, Kaeser was cited as saying by the Rheinische Post newspaper on April 13. Guenter Gaugler, a spokesman at Munich-based Siemens, confirmed the comments by phone. The manufacturer is scheduled to release first-quarter figures on May 2.

Siemens dropped as much as 3.1 percent to 78.31 euros, the lowest intraday price since Feb. 27, and was trading down 2.7 percent at 1:06 p.m. in Frankfurt, valuing the company at 69.2 billion euros ($90.5 billion). The stock has declined 4.6 percent this year, in contrast to a 0.6 percent gain for Germany’s benchmark DAX Index.

Siemens Chief Executive Officer Peter Loescher is midway through a program aimed at cutting costs by 6 billion euros by the end of 2014. Profitability dropped last year to the levels when Loescher started in 2007, prompting a new reorganization in November after the CEO acknowledged he had been too slow to react to falling demand amid waning global economic growth.

“From today’s point of view and despite the burdens in the first half, I continue to expect profit per share for the whole company in 2013 to reach at least the level of the prior year,” Kaeser was cited as saying by the Rheinische Post. “It will be tighter on the operating side, however.”

Order Intake

Second-quarter order intake will “clearly exceed” that of the first quarter and the year-earlier period because of several large orders, Kaeser said.

“The charges are a surprise,” Ingo-Martin Schachel, a Frankfurt-based analyst at Commerzbank AG with a hold recommendation on Siemens shares, said by telephone. “Given that they’re so big that Joe Kaeser feels he needs the occasion to warn the market, it’s clearly a negative surprise. I will have to increase my expectations for the project charges, but will leave the underlying result unchanged.”

Siemens is divesting units that management deems may hinder its goal of a 12 percent profit margin by the next fiscal year. It’s spinning off the Osram lighting unit, and seeking buyers for businesses such as airport luggage systems, mail automation and water technology.

The planned disposal of the solar business is “not easy due to the problematic market environment, and its handling on the balance sheet must be reviewed,” Kaeser was cited as saying.

The energy division is bearing the brunt of the Siemens cost-savings program, contributing 3.2 billion euros, while the industry sector will eliminate the greatest proportion of jobs, cutting 4,000 positions. Operating profit at competitor General Electric Co. (GE:US) represented 12.2 percent of sales in the three months to the end of December, compared with a 9.1 percent margin at Siemens, according to data compiled by Bloomberg.

To contact the reporter on this story: Alex Webb in Munich at awebb25@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net


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